Monday, July 23, 2012

China’s stocks fell, dragging the benchmark index down to the lowest level since March 2009, after a central bank adviser said economic growth will slow this quarter and as Europe’s crisis worsened the outlook for exports.

Jiangxi Copper Co. (600362) and China Shenhua Energy Co. led a decline among commodity producers on concern weaker growth will sap demand for raw materials. China Pacific Insurance (Group) Co. (601601), the nation’s fourth-largest insurer, dropped 2.2 percent after funds controlled by Carlyle Group LP offered to sell its Hong Kong-listed shares. Weichai Power Co., a maker of high- speed heavy-duty diesel engines, slumped the most since November 2010 after estimating a drop in second-quarter profit.

“The economy is still on a downtrend and that means corporate earnings could be worse than expected,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “The government is slow to respond to the economic slowdown and the market is disappointed at the magnitude of pro-growth measures.”

The Shanghai Composite Index (SHCOMP) dropped 1.3 percent to 2,141.40 at the close, the lowest level since March 13, 2009. The CSI 300 Index (SHSZ300) slumped 1.4 percent to 2,365.43. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, retreated 0.6 percent in New York on July 20.

Thirty-day volatility in the Shanghai index was at 15.1 today, compared with this year’s average of 17.9. About 6.4 billion shares changed hands in the gauge on July 20, 23 percent lower than the daily average this year.

Slower 3Q Growth

The Shanghai Composite fell 0.8 percent last week on concern earnings will deteriorate and as the government said it won’t ease property curbs. The measure has fallen 13 percent from this year’s high on March 2 amid concern an economic slowdown is deepening. It’s valued at 9.5 times estimated profit, compared with the average of 17.5 since Bloomberg began compiling the data in 2006.

China’s economic growth may cool to 7.4 percent this quarter, Song Guoqing, a member of the People’s Bank of China monetary policy committee, said at a forum in Beijing over the weekend. He also warned that a decline in producer prices in tandem with consumer inflation may hurt investment returns of industrial companies, damping their desire to expand.

‘More Pessimistic’

“The consensus is that China’s economic growth rate will be close to 8 percent in coming months, but I personally am more pessimistic because there are problems on the export side,” Song said. With Europe’s debt crisis still unfolding, “there is a risk of insufficient government measures if Chinese exports fall more sharply than expected in coming months,” he said.

The world’s second-largest economy grew 7.6 percent in the second quarter, the least in three years. Import and export growth both slowed last month.

HSBC Holdings Plc and Markit Economics are scheduled to release their preliminary manufacturing index for this month tomorrow. The reading was at 48.2 in June, below the 50 dividing line for expansion and contraction.

In Europe, German Vice Chancellor Philipp Roesler said he’s “very skeptical” that European leaders will be able to rescue Greece. Roesler, who is Germany’s economy minister, told broadcaster ARD that Greece was unlikely to be able to meet its obligations under a euro-area bailout program as its international creditors hold talks this week in Athens. Should that be the case, the country won’t receive more bailout payments, Roesler said.

Carlyle Sale

Europe is China’s largest export market, making up 18 percent of the nation’s overseas sales, according to Shenyin & Wanguo Securities Co.

China Pacific dropped 2.2 percent to 22.81 yuan. Carlyle Holdings Mauritius Ltd. and Parallel Investors Holdings Ltd. are selling 220 million shares in the insurer for HK$25.5 to HK$26 ($3.35) each, according to terms for the sale obtained by Bloomberg News. The selling price represents a discount of as much as 5.2 percent to the stock’s closing price in Hong Kong on July 20. The Hong Kong shares plunged as much as 12 percent.

Weichai Power slumped 7.9 percent to 23.69 yuan. First-half profit may have declined by about the same rate in the first quarter because of China’s macro-economic policy and the slowdown, the company said in a statement on July 20 after the market closed. Net income fell 45 percent in the first quarter.

CSRC Measure

Chinese publicly traded companies are required to release first-half earnings results in July and August. Of the 885 companies in the Shanghai Composite, the 20 that reported second-quarter earnings had an average 3.3 percent profit decline, according to data compiled by Bloomberg. Profit rose 2.8 percent in the first quarter, the data showed.

The China Securities Regulatory Commission will further reduce commission charges for securities trading by as much as 20 percent, the Shanghai Securities News reported on its website on July 20, citing an unidentified CSRC official. The CSRC will announce a detailed plan by Sept. 1, it said.

Zhejiang Reclaim Construction Group Co. led gains among Chinese waterworks companies after the government allocated 120 million yuan ($18.8 million) for rainstorm relief and repairs after flooding in Beijing over the weekend.

The rainstorm, the heaviest since records were first kept 60 years ago, killed 37 people and caused 10 billion yuan of losses, while about 80,000 travelers were stranded after their flights were delayed, the China Daily newspaper said. Authorities evacuated 56,933 people, the official Xinhua News Agency reported.

Chinese stocks fell for a third week in New York before Internet companies from Baidu Inc. to Ctrip.com International Ltd. report second-quarter earnings that analysts estimate will show slower profit growth. The Bloomberg China-US Equity Index of the most-traded Chinese shares in the U.S. sank 1.9 percent last week.

--Zhang Shidong. Editors: Allen Wan, Richard Frost

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

European stocks had the biggest two- day drop since April as concern grew that Greece will default and more Spanish regions will follow Valencia in seeking a bailout. U.S. index futures and Asian shares dropped.

The Stoxx Europe 600 Index (SXXP) slid 1.7 percent to 253.81 at 9:45 a.m. in London, extending July 20’s 1.4 percent drop for the biggest two-day decline since April 4. The measure has still climbed for seven straight weeks, the longest winning streak in more than six years, as central banks from Europe to China eased monetary policy to help spur economic growth. Standard & Poor’s 500 Index futures lost 0.9 percent today, while the MSCI Asia Pacific Index sank 1.9 percent.

“The market has had a reality check making it impossible to justify higher stock prices on so-so company reporting,” said Henrik Drusebjerg, who helps oversee $230 billion as senior strategist at Nordea Bank AB in Copenhagen. “Concern over Greece and the situation in Spain, with Valencia signing up for a bailout, are part of the reality check -- but investors are also catching up with a string of bad data from the U.S. last week and generally disappointing macro news from Europe.”

Greek Troika

The troika of Greece’s international creditors -- the European Commission, the European Central Bank and the International Monetary Fund -- will arrive in Athens tomorrow amid doubts that the country will meet its bailout commitments. German Vice Chancellor Philipp Roesler said he’s “very skeptical” European leaders will be able to rescue Greece.

The IMF will stop paying further rescue aid to Greece, making the country’s insolvency in September more likely, Der Spiegel magazine reported yesterday, citing unidentified European Union officials.

Spain’s Balearic Islands and Catalonia are among six Spanish regions that may ask for aid from the central government after Valencia sought a bailout on July 20, El Pais reported, without citing anyone. Castilla-La-Mancha, Murcia, the Canary Islands and possibly Andalusia are also having difficulty funding themselves and some of these regions are studying plans to access the recently created emergency-loan fund that Valencia said it would use last week, the newspaper said.

‘Palliative Care’

“A cacophony of bad news from Europe was released on Friday and over the weekend as a stark reminder that the euro zone still needs palliative care,” said Jonathan Sudaria, a trader at Capital Spreads in London.

China Cooling

China’s economic expansion may cool for a seventh straight quarter to 7.4 percent in the three months to September, said Song Guoqing, a member of the People’s Bank of China monetary policy committee.

A July 27 report may show the U.S. economy grew at the slowest pace in a year in the second quarter. Gross domestic product rose at a 1.4 percent annual rate after a 1.9 percent gain in the prior quarter, according to the median forecast of 70 economists surveyed by Bloomberg. Factory orders softened and new-home sales were little changed, other data may show this week.

Eurotunnel (GET), which operates the rail tunnels beneath the English Channel, plunged 5.8 percent to 5.92 euros. The company reported first-half earnings before interest, taxes, depreciation and amortization of 205 million euros ($248 million), missing the average analyst estimate of 224 million euros in a Bloomberg survey.

Wereldhave NV (WHA) sank 12 percent to 46.18 euros, the largest drop since at least 1989. The Dutch real estate company cut the value of property in the U.S. and the U.K., leading to a drop in dividend targets for this year and next.

Danone Downgrade

Philips (PHIA) climbed 7.6 percent to 17.45 euros. The company reported an increase in second-quarter profit as Chief Executive Officer Frans van Houten extends a savings program into a second year. Earnings before interest, taxes, amortization and other one-time items rose to 450 million euros compared with 371 million euros a year earlier, the company said. Sales of 5.89 billion euros beat the 5.58 billion-euro analyst prediction in a Bloomberg survey.